The landmark agreement, which took five years to negotiate, covers 600 million people, a third of the world’s GDP and will increase trade and investment in the two markets as well as reducing prices for consumers.
The presidents of the European Council and the European Commission, Donald Tusk and Jean-Claude Juncker, were in the Japanese capital of Tokyo on behalf of the 28 EU member states for the signing ceremony.
A joint statement released with the Japanese government afterwards said: “Today marks a historic step as we celebrate the signing of a highly ambitious trade agreement between two of the world’s largest economies.
“In giving full effect to this agreement, the EU and Japan are sending a powerful message to promote free, fair and rules-based trade, and against protectionism.
“The agreement will also deliver sustainable and inclusive economic growth and spur job creation.
“The agreement demonstrates to the world – and to our citizens – that free, fair and rules-based trade remains an important tool to promote prosperity in our societies and globally.
“Furthermore, the EU and Japan will continue their negotiations on investment rules.”
Mr Juncker described the deal as a “win-win”.
“Today’s signature of the EU-Japan Economic Partnership Agreement is a landmark moment for global trade,” he said.
“It brings together economies that account for a third of the world’s GDP and are home to over 600 million people.”
The complex negotiations which have culminated in the deal began with talks back in 2013. The consequence will be the removal of tariffs and cheaper goods for consumers.
At the moment, EU companies pay €1bn (£890m) of duty on products they export to Japan. Almost all of these tariffs will now be removed and 95% of tariffs the other way will also be wiped out.
These companies – including UK firms until Brexit – export nearly €60bn (£53bn) of goods and €28bn (£25m) of services to Japan.
According to the European Commission, the new deal has the potential to increase these exports by a quarter.
For consumers in the EU and Japan, the deal means products from each other’s markets will be cheaper, with duties to be scrapped on items as diverse as cheese, wine and cars.
Japanese car makers will see an immediate elimination of the up to 4% tariffs currently in place for 90% of Japanese car parts – and all tariffs on cars will be eliminated within the next seven years.
The deal sends a blunt signal to President Donald Trump that the two parties clearly see the benefits of removing trade barriers at a time when the US is declaring a trade war with the EU and China.
In a pointed message, Mr Tusk said: “The real risks to our economy, jobs and prosperity are political uncertainty, tariff war, unpredictability, irresponsibility and aggressive rhetoric. Not free trade agreements.”
“With the largest bilateral trade deal ever, today we cement Japanese-European friendship. Geographically, we are far apart. But politically and economically we could hardly be any closer. With shared values of liberal democracy, human rights and the rule of law.”
Commenting on the deal, Ross Denton, of the global law firm Baker McKenzie, said that both Japan and the EU had compromised to produce a significant new partnership.
“Both sides have granted concessions to the other (eg Japan on agriculture, and EU on cars), and come up with a balanced outcome that will give world trade a significant boost at a time of marked uncertainty,” he said.
The UK will be able to take advantage of the new deal during the Brexit implementation period, currently scheduled to end in 2020, but it will then need to negotiate its own trade deal with Japan and with the EU.
Mr Denton added: “There will of course be strong pressure on the UK to replicate the EU’s agreement with Japan as part of its own web of new bilateral trade agreements.”